If a fire destroyed your house, would your insurance carrier expect you to live in a small one-bedroom apartment throughout the year-long process of planning and building your new home? And what if the insurer limited your new home's design to a modest cracker box, because your policy only covered “insured value” rather than “replacement value?”

Then you would know that all homeowner policies are not created equal.

In the event of a loss, it's important that your lifestyle be protected and restored as completely as possible—starting with your temporary accommodations. And when your home is rebuilt, the last thing you need is to be told there's a limit to how much you can spend to replace what you had.

How do some homeowners completely restore their homes and lifestyles while others are forced to haggle over additional out-of-pocket costs? The fact is that not all insurance policies are the same. As your life changes, your insurance needs become more complex and your old mass-market insurance policy might not be keeping pace.

In other words, as your lifestyle improves, the amount of choice, flexibility and value built into your homeowner's policy becomes more important.

The Replacement Gap
It is often at the critical juncture of a loss that homeowners learn their insurance has not kept pace with their home's replacement value.

“If you have owned your home for 20 years and you still have the same insurance you had when you bought your home, it's very possible your insurance has not kept up,” says Mitch Ziemer, insurance expert.

Some policies insure only for actual cash value while others cover replacement costs. What's the difference? When actual cash value is used, the policyholder is entitled to the depreciated value of the damaged property. So the older the item is, the less money you may receive to replace it.

You'll want a policy that pays the complete replacement cost— including rare and custom work. Under replacement cost coverage, the policyholder is reimbursed the amount it costs to replace the property and its contents with something of a similar type and quality at current prices.

For example, your Italian marble floors would be covered for the cost of the materials and installation— even if these costs are higher at the time of replacement than they were for the original installation. The policy would also rebuild your downstairs home theater and replant your landscaping.

You should also seek a policy from an insurer that pays for all comparable living expenses (compared to a predefined limit) you incur while your home is being rebuilt. And if you don't want to rebuild in the original location, you have the option to receive a cash settlement, which is not offered by many insurers. Plus, when you do rebuild, you can work with the contractor of your choice, not the insurance company's.

While perhaps a little lower in price, mass-market policies often do not even insure the full replacement value of your home.

To get an accurate value to assess risk, you need experts who know the market, your home, and your possessions.

Check out our list of advertisers for the best insurance companies in the area.